HOPES were raised yesterday that the UK could be nearing partial recovery mode at last, after official estimates revealed the economy grew unexpectedly quickly in the first three months of the year.
Economists hope the 0.3 per cent expansion means fears of a triple-dip recession can be banished for good.
And many no longer think the Bank of England will expand quantitative easing, as the economy could grow without the extra stimulus – handing the chancellor some breathing space over the next few months from pressure to rethink his economic policies.
“We remain optimistic that the recovery will continue during 2013 – further policy stimulus will not be required,” said Deutsche Bank’s George Buckley.
“The figure should also provide some cover for the chancellor to continue on the path of fiscal austerity.”
The all-important services sector saw output grow 0.6 per cent during the quarter and 1.5 per cent on the year, meaning the largest sector of the economy is now bigger than it was at its previous peak in 2008.
That rise more than outweighed weak production output, which increased 0.2 per cent over the quarter but fell 2.3 per cent on the year, as well as construction output which plunged 2.5 per cent on the quarter and 5.9 per cent on the year. Total growth came in at 0.3 per cent, largely reversing the fall in the previous three months.
George Osborne welcomed the figures as signs his policies are finally bearing fruit. “Today’s figures are an encouraging sign the economy is healing,” said the chancellor. “Despite a tough economic backdrop, we are making progress.”
Economists believe his latest move to hike the income tax threshold will provide a boost in the second quarter by helping consumers. And if the Bank of England decides against further quantitative easing, that should help keep inflation lower than previously anticipated, again lifting disposable income.
Upbeat statisticians added that the recovery could even already be more solid than the latest figures suggest.
“Actual growth is likely to be higher than reflected in official figures due to the difficulty in measuring output in fast-growing high-tech sectors,” said Scott Corfe from the CEBR.
But the British Chambers of Commerce (BCC) said that while the numbers should provide a much needed confidence boost, growth would remain weak unless the government introduced radical measures to get the economy moving.
“The government must consider a significant shift in priorities to boost growth within the existing spending envelope, by allocating more current spending towards capital investment over the next few years,” said John Longworth, the BCC’s director-general.